About incorporated societies
How incorporated societies are formed, and how they operate
What is an incorporated society?
A group or association can choose to organise itself in certain ways, to help it run effectively and achieve its goals. One option is to become an incorporated society.
This is done by registering under the Incorporated Societies Act 1908, which gives the group its own legal identity, separate to that of its members.
It means that while the membership may change, the society’s identity does not. It also means the members are not personally liable for the society's debts or other obligations, and cannot have a personal interest in any property or assets owned by the society.
Becoming an incorporated society suits an organisation that is likely to be operating for a long period, and for a purpose other than making a profit.
A wide range of organisations can become incorporated societies. These include sports and social clubs, cultural and religious groups, and special interest and activist organisations.
An incorporated society continues to exist while it files certain documents with the Companies Office, or until its members, or a creditor, decides to bring the society to an end.
The advantages of becoming an incorporated society
Whatever the reasons a group meets, there are some significant benefits to becoming an incorporated society:
- An incorporated society can lease, rent, buy and sell property, borrow money and sign contracts in its own name.
- The society’s property (premises, money, trophies etc) is held by the society rather than by its members. No individual member can have a personal interest in any of the society’s assets.
- An incorporated society maintains its own separate legal identity even when its membership changes.
- Members cannot be personally liable for the society’s debts or other obligations unless:
- they apply to activities undertaken to obtain money for profit that personally benefits those members
- they relate to unlawful activities.
In these cases, every member involved is personally liable.
- Because the society’s rules must meet the minimum requirements set out in the Incorporated Societies Act 1908, there is certainty and consistency in the way the society is run.
- An incorporated society may be entitled to an income tax exemption.
Contact Inland Revenue on 0800 377 774 or visit their website at www.ird.govt.nz for more information. - An incorporated society can register as a charity under the Charities Act 2005, if its activities and 'objects' are considered to qualify it.
If you're unsure about the value of incorporation for your association, it’s best to seek legal advice.
What an incorporated society can do
Any activity carried out by an incorporated society must:
- be lawful
- be permitted by its own rules
- not make money for the benefit of individual members.
Legal obligations
An incorporated society must comply with the laws of New Zealand. This means meeting any tax obligations and complying with any government agency requirements that may apply to the society’s activities.
Some activities may require approval or a licence from a central or local government agency, for example:
- fundraising that involves the sale of liquor
- running housie, casino evenings or raffles
- holding street stalls.
Complying with the society’s own rules
A society’s rules must include a section setting out the ‘objects’ of the society. This means its purpose or the reasons why it is being established. All society activities should fall within this purpose.
The rules must also set out how the society is to be run.
Restrictions on distributing money to members
An incorporated society can raise money to help achieve its 'objects', as set out in its rules. It cannot, however, make money to distribute to its members. For example, a society can raise money to send a sports team to a tournament (if that type of activity is allowed by its rules), but it cannot raise money and give it to its members to use as if it were their own.
An incorporated society can employ people, including society members, and pay them for the work they do.
Who can become an incorporated society
Any group with 15 or more members can apply to become an incorporated society.
Both individuals and corporate bodies can make up this number. If some members of your group are corporate bodies, then each of these bodies counts as three people for the purpose of making up the minimum number of 15 members, required to add their names to the application for incorporation.
Corporate bodies include:
- incorporated societies
- companies incorporated under the Companies Act 1993
- charitable trusts incorporated under the Charitable Trusts Act 1957
- a city, district or regional council.
An unincorporated body cannot be a member of an incorporated society.
A wide range of organisations can become incorporated societies. These include sports and social clubs, and cultural, special interest, church and activist groups.
If you're unsure about the value of incorporation for your association, it’s best to seek legal advice.
What if a society is not incorporated?
A society does not have to be incorporated in order to operate. So, before you decide whether to incorporate, you should consider the following issues of not doing so:
- The society does not have a separate legal identity to that of its members.
- Members of an unincorporated society can be held liable for the society’s debts.
- An unincorporated society cannot sue or be sued in court. Any court action would be taken by, or against, the members individually.
- An unincorporated society cannot own property or enter into contracts.
- If a society is not incorporated, it is not required to have rules to govern it. This can become a problem if there are disputes about how the society is run.
- Gifting property (including money) to a society that is not incorporated can be a problem.
- An unincorporated society cannot use the word ‘Incorporated’ at the end of its name.
